Take-Home Pay

Posted in Human Resource Terms, Total Reads: 328

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Definition: Take-Home Pay

Take-Home Pay is payment received by individual from employer after all statutory allowances which are mandated by various laws are deducted from gross salary. This is the salary or wages taken by employees and can be completely used for his/her use.

Take-Home Pay is important when individual applies for loans for various important purchases. While calculating EMI, less Take-Home Pay means less EMI person take for Home Loan or Car Loan. This increase period of loan. Better take home pay makes easy to have income or cash which can be considered available to one’s disposal at his /her will.

Statutory deductions are those deductions which various laws related to welfare of individual and society mandate. This include deductions as per income tax act in country, deductions towards post retirement fund and expenses of medical insurance premium etc.

Generally observed statutory deductions:

1. Income Tax:

It is levied based pre-decided income brackets and range from 10% to 30% of gross salary. As individual’s income crosses pre-decoded limit, more percentage of income tax is levied. These are deduction mandated by federal government.

2. Social Security deductions like post retirement income source:

These deductions are aimed towards providing income to individual once he/she moves out of working age limits. These deductions are collected into account over a period of his/her employment ranging from 30 to 40 years. These fund accumulate over such a long term and also interest is earned on these accumulated savings. These funds can be used to earn post retirement income.

3. Medical Insurance Premium:

Certain countries mandatorily ask for these deductions like developed countries and other countries give benefit for purpose of taxable income. These insurance are aimed at providing hospitalization expenses when hospitalization occurs for major ailments for the person and his/her dependants. This premium ensure living expenses are not reduced when hospitalization occurs and provide payments towards medi-claim expenses.

These are major deductions that are more or less considered essential towards welfare of individual. These deductions are deducted to get Take-Home Pay.

Hence, this concludes the definition of Take-Home Pay along with its overview.

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